Leave Encashment exemption raised from ₹3 Lakh to ₹25 Lakh: Filing Section 119(2)(B) Application

Leave Encashment Exemption Raised from ₹3 Lakh to ₹25 Lakh: How to File Section 119(2)(b) Condonation Application; Missed ₹25 Lakh Leave Encashment Exemption Earlier? Section 119(2)(b) Remedy for Claims Restricted to ₹3 Lakh; From ₹3 Lakh to ₹25 Lakh Leave Encashment Exemption: Practical Guide to Section 119(2)(b) Application; Section 119(2)(b) Explained: Claim ₹25 Lakh Leave Encashment Exemption Earlier Limited to ₹3 Lakh; CBDT Raises Leave Encashment Limit from ₹3 Lakh to ₹25 Lakh: How Retirees Can Seek Refund via Section 119(2)(b); ₹3 Lakh vs ₹25 Lakh Leave Encashment Exemption: Draft Application Under Section 119(2)(b) for Retirees; Did You Claim Only ₹3 Lakh Leave Encashment? Here’s How to Get ₹25 Lakh Exemption Approved.

After the publication of the article on leave encashment for retirees, wherein it was highlighted that an application under section 119(2)(b) of the Income-tax Act, 1961 should be filed before the jurisdictional CCIT/PCIT for condonation of delay in filing a revised return and for making a belated claim of exemption under section 10(10AA)(ii), there was a noticeable surge in queries. Numerous telephonic calls and emails were received from members and assessees seeking practical guidance on the manner of making such applications. In view of these repeated requests, it was considered appropriate to suggest a standard and comprehensive proforma for filing an application under section 119(2)(b). While the facts, assessment years, and amounts involved may differ from case to case, a well-structured and legally sound application—addressing statutory requirements, demonstrating reasonable cause, establishing absence of any mala fide intent, and highlighting the genuine hardship arising from denial of a lawful exemption—would act as an effective guiding framework. Such a suggested format can be suitably customized to individual cases, ensuring consistency, clarity, and a more informed and favorable consideration of the condonation request by the competent authority. Also Read: Leave Encashment Revolution: Decoding New ₹25 Lakh Exemption

To
The Principal Commissioner of Income Tax / Commissioner of Income Tax
[Specify Jurisdiction – e.g. PCIT- ]
[City]

Through: The Assessing Officer, Ward / Circle _

Subject: Application under section 119(2)(b) for condonation of delay in filing revised return / claim for exemption of leave encashment u/s 10(10AA)(ii) – A.Y. ___ – [Name], PAN: __

Respected Sir/Madam,

I, [Name], PAN [__], resident of [address], most respectfully submit this application under section 119(2)(b) of the Income-tax Act, 1961 seeking condonation of delay in making a correct claim for exemption of leave encashment on retirement under section 10(10AA)(ii), based on the enhanced limit of ₹25,00,000 notified by CBDT vide Notification No. 31/2023 dated 24.05.2023.

I. Brief facts

1. I was employed with M/s [Hindustan Petroleum Corporation Ltd / State Bank of India / …] and retired on ____ (DD.MM.YYYY).

2. At the time of retirement, I received leave encashment of ₹____. My employer allowed exemption of only ₹3,00,000 and deducted TDS on the balance, in line with the pre-existing limit of ₹3,00,000 as per CBDT Notification S.O. 588(E) dated 31.05.2002.

3. For A.Y. ___ (F.Y. __), I filed my original return of income on [date], within the prescribed time, declaring the leave encashment and claiming exemption of only ₹3,00,000 u/s 10(10AA)(ii), as that was the legal limit understood at that time.

4. The return was processed u/s 143(1) and tax, including TDS on leave encashment, stood accepted. I did not file any revised return or appeal at that stage, as there was no notification or legal precedent suggesting a higher exemption limit for non-government retirees like me.

II. Change in law – CBDT Notification No. 31/2023

5. Subsequently, the Central Board of Direct Taxes issued Notification No. 31/2023, S.O. 2276(E), dated 24.05.2023 under section 10(10AA)(ii), increasing the maximum exemption for non-government employees from ₹3,00,000 to ₹25,00,000, with effect from 1 April 2023. The Explanatory Memorandum to the notification specifically states that no person is being adversely affected by giving retrospective effect to this notification.

6. It was only after this notification and subsequent professional discussions/retirees’ group communications that I became aware that the enhanced limit of ₹25,00,000 is being treated as a beneficial provision applicable even to earlier years where leave encashment was already taxed, provided the claim is within the statutory time limits and condonation is granted.

III. Judicial developments – ITAT applying ₹25 lakh limit to earlier years

7. Recently, several Benches of the Hon’ble Income Tax Appellate Tribunal have held that the enhanced limit of ₹25,00,000 notified by CBDT is a beneficial measure and can be applied to retirements and assessment years prior to 01.04.2023, inter alia:

1. Chandra Prakash Vashistha v. ITO, Ward-1(4), Jaipur

– ITA No. 1139/JPR/2025 (Jaipur Bench), order dated 07.10.2025, A.Y. 2021-22

– Retired SBI employee; leave encashment of ₹13,05,810.

– ITAT condoned 959 days’ delay and directed the AO to apply Notification 31/2023 and treat the entire leave encashment (within ₹25 lakh) as exempt u/s 10(10AA)(ii).

2. Govardhan Deepchand Bhambhani v. ITO, Ward-7(2)(1), Ahmedabad

– ITA No. 289/Ahd/2025 (Ahmedabad Bench), order dated 28.07.2025, A.Y. 2020-21

– Retired Punjab National Bank employee; leave encashment of ₹7,65,404.

– ITAT held that, in view of CBDT Notification 31/2023 and earlier Jaipur decisions (Ram Charan Gupta, Govind Chhatwani, Devendra Kumar Gupta), the full amount up to ₹25 lakh is exempt even for A.Y. 2020-21, and the restriction to ₹3 lakh was deleted.

3. Vijay Kumar Jain / Anil Kumar Khattri (Agra Bench)

– ITA Nos. 175 & 187/Agr/2022 (Agra Bench), common order dated 18.06.2025, A.Ys. 2019-20 & 2020-21

– Both assessees were SBI retirees; CPC had rectified u/s 154 to restrict exemption to ₹3 lakh.

– ITAT held that, in light of Notification 31/2023 and earlier Jaipur decisions, the assessees are eligible to claim full leave encashment exemption within ₹25 lakh for A.Y. 2019-20 and 2020-21, and directed AO to allow exemption u/s 10(10AA)(ii) read with the notification.

4. Devi Dutt Agarwal v. Assessment Unit, Jaipur

– ITA No. 1375/JPR/2024 (Jaipur Bench “SMC”), order dated 13.03.2025, A.Y. 2020-21

– Assessee first claimed ₹3 lakh exemption, later filed revised return claiming ₹12,13,200 as exempt.

– ITAT condoned 326 days’ delay, relied on Notification 31/2023 and the Delhi High Court’s order in Kamal Kumar Kalia & Ors. v. Union of India, and directed the AO to accept the full revised claim of leave encashment within the ₹25-lakh limit.

8. These decisions show a consistent judicial view that:

• Notification 31/2023 is beneficial and clarificatory, and
• The enhanced limit of ₹25,00,000 for non-government employees’ leave encashment at retirement can be applied to earlier assessment years where tax was collected above the old ₹3-lakh ceiling, subject to limitation and condonation.

IV. Genuine hardship and reason for delay

9. I am a retired employee and senior citizen, and my income consists essentially of pension, interest and similar fixed sources. At the time of filing my original return for A.Y. ____, it was the settled position that only ₹3,00,000 was exempt for non-government employees; therefore, neither I nor my tax consultant contemplated any higher claim.

10. Only after:

• CBDT issued Notification 31/2023 on 24.05.2023, and
• The above ITAT orders (from Jaipur, Ahmedabad and Agra Benches) became known in professional circles and retirees’ groups,

did I realise that I may legally be entitled to full exemption of my leave encashment of ₹____ (within ₹25 lakh), and consequently a refund of excess tax deducted and paid.

11. By that time, the normal time for filing a revised return u/s 139(5) and even filing an updated return u/s 139(8A) had expired, despite there being no fault or suppression on my part. I had fully disclosed the leave encashment and corresponding TDS in my earlier return.

12. Denying me the benefit of a beneficial CBDT notification and consistent ITAT jurisprudence merely due to procedural deadlines, though I acted promptly once the legal position became clear, would cause serious financial hardship and defeat the explicit purpose of Notification 31/2023, which was issued after decades to correct an outdated limit.

V. Prayer

In the above facts and circumstances, I most humbly pray that:

1. Delay in making the correct claim of exemption u/s 10(10AA)(ii) be condoned under section 119(2)(b), treating my case as one involving genuine hardship;

2. The enclosed revised computation / ITR for A.Y. ________ (reflecting full exemption of leave encashment of ₹________, within ₹25,00,000) may kindly be admitted and treated as a valid return/claim, notwithstanding the expiry of the normal time limit under section 139(5);

3. The Assessing Officer may please be directed to:

• Recompute my total income for A.Y. _____ after granting exemption u/s 10(10AA)(ii) up to ₹25,00,000 in line with CBDT Notification 31/2023 and the ITAT decisions cited above; and
• Grant consequential refund of excess tax with applicable interest under section 244A.

I remain ready to furnish any further details, documents or clarifications that may be required in support of this application.

Thanking you,

Yours faithfully,

[Name]

PAN: [__]
Address: [_]
Mobile: [__]
Email: [__]

Enclosures:

1. Copy of original ITR for A.Y. ___

2. Computation of income (original and revised)

3. Form 16 / salary certificate showing leave encashment and TDS

4. CBDT Notification No. 31/2023 dated 24.05.2023

5. Copies / printouts of relevant ITAT orders (as available)

6. Any other supporting documents